Hospitals are selling off their lucrative pharmacy operations to pharmamaceutical companies as the government pressures them to adopt zero commission policies on drug sales.
Sales of drugs account for as much as 45% of hospital revenue, but the Chinese government is forcing hospitals to separate their pharmacy units and stop profiteering from them. This week Zheng Yang in China Economic Net reports that Kangmei Pharmaceutical has bought up more than 80 hospital pharmacy trusteeships in areas such as Liaoning and Guangdong. Kangmei has signed contracts to operate the pharmacies for periods of up to 20 years, and will be responsible for the supply of all pharmaceuticals within the hospitals. The deal looks to be very lucrative for Kangmei, with revenue from just nine hospital pharmacies reported to be 1.3 billion yuan in 2013. Kangmei says it expects to make about half a billion yuan per year from each hospital, up from about 100 million yuan that it currently makes in drug sales on average to each hospital. In addition to this added revenue, the company hopes to profit from supply chain efficiencies and also from the pricing power its monopoly will bring. The report quotes Liao Xinbo, deputy director of the Health Department of Guangdong Province, as saying that the importance of the pharmacy to a hospital is diminishing as policy measures like "zero price difference of medicine" are introduced as part of China's health reforms. Pharmacies will soon become a 'cost' rather than a profit centre for hospitals, he predicts. Hospital pharmacies currently account for 80% of China's pharmaceutical market with a value exceeding 1 trillion yuan.
Analysts say hospitals may enter profit sharing agreements with pharmacy owners, thus defeating the Chinese government's health reform goal of removing hospital profit incentives from prescribing of drugs.